RBA Rates Decision – August 2010

The cash rate remains on hold this month after good news on lower than expected 2^nd quarter CPI (Inflation) data last week.  The RBA believe the current cash rate setting is adequate for the time being.

There is still upward pressure on rates as our economy is in very good shape compared to the rest of the world.  The upward pressure remains due to good employment data, with a decrease in the unemployment rate reported in July.  Westpac’s consumer sentiment survey reading for July was also positive.

On the downward pressure side, we are seeing consumer spending at lower than expected levels in retail sales, due to households feeling the pinch of higher interest rates.

If we see above growth rate GDP numbers, along with higher CPI numbers in the 3^rd quarter and wage growth due to low unemployment and positive sentiment in the market continues then we might see one more rate rise late this year.  However, I’m predicting rates to remain on hold until into 2011, at which point we will need to review the new sets of data both locally and also what’s happening around the world.

 

What does this means for Residential Property here in Melbourne?

If low unemployment continues, then I suspect a soft landing for values in area where employment is available as the mortgage belt does what they can to struggle with meeting mortgage repayments.

Well located properties with manageable affordability readings could see values continue to climb, but at a slower rate of growth.

Affordability is making it tougher for new entrants into the market. Couple this with housing shortages means that greater pressure will come of rents.  It wouldn’t surprise me if rental rates grew by double digit numbers over the next 12 months in some locations, as they play catch up to actual values, given values simply won’t grow at the rates they have in the past 12 months – that for sure.

So mid term outlook for property is one of a stable market, with some moderate pressure in the outer suburb mortgage belt where I see land values not holding up the high demand phase they have just been through.  This could represent some buying opportunities over the next 6-12 months for those buying for lifestyle.  Middle and inner city suburbs will continue to rise under demand pressures for both purchase and rents, but I see purchasing pressures moderating and stock levels improving to capitalise on the top of the market view in this cycle.  Buying opportunities are now materialising and buyers may now be in a position to negotiate harder than in the first half of this year.  Long term investors and owner occupiers can now start looking at the market with more realistic expectations.